9 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 9 Nature of Traditional and Online Contracts Chapter 9 Nature of Traditional.
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© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 1
Chapter 9Nature of Traditional and
Online Contracts
Chapter 9Nature of Traditional and
Online Contracts
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 2
A A contractcontract is an is an
agreement that is agreement that is
enforceable by a enforceable by a
court of law or court of law or
equity.equity.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 3
Introduction• Contracts are the basis of
many daily activities.• They provide the means for
individuals and businesses to sell and otherwise transfer property, services, and other rights.
• Without enforceable contracts, commerce would collapse.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 4
Introduction (continued)
• Contracts are voluntarily entered into by parties.
• The terms of the contract become private law between the parties.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 5
Legally Enforceable Contract• If one party fails to perform
as promised, the other party can use the court system to enforce the contract and recover damages or other property.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 6
Parties to a ContractEvery contract involves at
least two parties.
• Offeror – the party who makes an offer to enter into a contract.
• Offeree – the party to whom an offer to enter into a contract is made.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 7
Parties to a Contract
OfferorOfferorOfferorOfferor OffereeOffereeOffereeOfferee
OfferOffer
AcceptanceAcceptance
Offeror makes an Offeror makes an offer to the offereeoffer to the offeree
Offeree has the powerOfferee has the powerto accept the offerto accept the offerand create a contractand create a contract
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 8
To be an enforceable contract, four basic requirements must be met:
Elements Elements of a of a
ContractContract
AgreementAgreement ConsiderationConsideration
Contractual Contractual CapacityCapacityLawful Lawful
ObjectObject
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 9
Elements of a Contract (continued)
• Agreement– There must be agreement
between the parties.– This requires an offer by the
offeror and an acceptance of the offer by the offeree.
– There must be mutual assent by the parties.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 10
Elements of a Contract (continued)
• Consideration– The promise must be
supported by a bargained-for consideration that is legally sufficient.
– Gift promises and moral obligations are not considered supported by valid consideration.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 11
Elements of a Contract (continued)
• Contractual Capacity– The parties to a contract must
have contractual capacity.– Certain parties, such as
persons adjudged to be insane, do not have contractual capacity.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 12
Elements of a Contract (continued)
• Lawful Object– The object of the contract
must be lawful.– Contracts to accomplish illegal
objects or contracts that are against public policy are void.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 13
Defenses to the Enforcement of a Contract
• Genuineness of Assent– The consent of the parties to
create a contract must be genuine.
– There is no real consent if the consent is obtained by:
• Duress• Undue influence• Fraud
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 14
Defenses to the Enforcement of a Contract (continued)
• Writing and Form– The law requires that certain
contracts be in writing or in a certain form.
– Failure of these contracts to be in writing or be in proper form may be raised against the enforcement of the contract.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 15
Sources of Contract Law• The Common Law of
Contracts– Contract law developed
primarily by state courts.
• The Uniform Commercial Code (UCC)– Comprehensive statutory
scheme that includes laws that cover aspects of commercial transactions.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 16
Sources of Contract Law (continued)
• The Restatement of the Law of Contracts– Compilation of model contract
law principles drafted by legal scholars.
– The Restatement is not law.– However, lawyers and judges
often refer to it for guidance in contract disputes.
– Currently in its second edition.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 17
Classifications of ContractsBilateral
Contract• A contract
entered into by way of exchange of promises of the parties.
• “A promise for a promise.”
Bilateral Contract
• A contract entered into by way of exchange of promises of the parties.
• “A promise for a promise.”
Unilateral Contract
• A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree.
• “A promise for an act.”
Unilateral Contract
• A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree.
• “A promise for an act.”
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 18
Classifications of Contracts (continued)
Express Contract
• An agreement that is expressed in written or oral words.
Express Contract
• An agreement that is expressed in written or oral words.
Implied-in-fact Contract
• A contract where agreement between parties has been inferred from their conduct.
Implied-in-fact Contract
• A contract where agreement between parties has been inferred from their conduct.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 19
Classifications of Contracts (continued)
Objective Theory of Contracts
• The intent to enter into an express or implied-in-fact contract is judged by the reasonable person standard.
• The subjective intent of a party to enter into a contract is irrelevant.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 20
Classifications of Contracts (continued)
Quasi-Contracts (Implied-in-Law Contracts)
• Allows a court to award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed between the parties.
• Intended to prevent unjust enrichment and unjust detriment.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 21
Classifications of Contracts (continued)
Formal Contracts
• Contracts that require a special form or method of creation.– Contracts
Under Seal– Recognizances– Negotiable
Instruments– Letters of
Credit
Formal Contracts
• Contracts that require a special form or method of creation.– Contracts
Under Seal– Recognizances– Negotiable
Instruments– Letters of
Credit
Informal Contracts
• No special form or method is required for their creation.
• Fully enforceable and may be sued upon if breached.– Leases– Sales Contracts– Service
Contracts
Informal Contracts
• No special form or method is required for their creation.
• Fully enforceable and may be sued upon if breached.– Leases– Sales Contracts– Service
Contracts
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 22
Classifications of Contracts (continued)
Valid Contract• Contract that
meets all of the essential elements to establish a contract.
• Enforceable by at least one of the parties.
Valid Contract• Contract that
meets all of the essential elements to establish a contract.
• Enforceable by at least one of the parties.
Void Contract• A contract
that has no legal effect.
• Neither party is obligated to perform.
• Neither party can enforce the contract.
Void Contract• A contract
that has no legal effect.
• Neither party is obligated to perform.
• Neither party can enforce the contract.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 23
Classifications of Contracts (continued)
Voidable Contract
• Contract where one or both parties have the option to avoid their contractual obligations.
• If a contract is avoided, both parties are released from their contractual obligations.
Voidable Contract
• Contract where one or both parties have the option to avoid their contractual obligations.
• If a contract is avoided, both parties are released from their contractual obligations.
Unenforceable Contract
• A contract where the essential elements to create a valid contract are not met.
• However, there is some legal defense to the enforcement of the contract.
Unenforceable Contract
• A contract where the essential elements to create a valid contract are not met.
• However, there is some legal defense to the enforcement of the contract.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 24
Classifications of Contracts (continued)
Executed Contract
• A contract that has been fully performed on both sides.
• A completed contract.
Executed Contract
• A contract that has been fully performed on both sides.
• A completed contract.
Executory Contract
• A contract that has not been fully performed by either or both sides.
Executory Contract
• A contract that has not been fully performed by either or both sides.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 25
EquityEquity
A doctrine that permits judges to A doctrine that permits judges to make decisions based on fairness, make decisions based on fairness, equality, moral rights, and natural equality, moral rights, and natural law.law.
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